China, ‘pummelled’ yuan could feel ripple effects as Fed signals 2024 rate cuts (2024)

FAQs

What are some of the ripple effects when the Fed raises the federal funds rate? ›

This makes it more expensive for banks to borrow money from each other, so they will pass on these higher costs to consumers and businesses looking to borrow in the form of higher interest rates on loans, such as car loans and mortgages. This decreases borrowing and overall demand in the economy.

SHANGHAI - China surprised markets by lowering a key short-term policy rate and its benchmark lending rates on July 22, in efforts to boost growth in the world's second-largest economy.

The cuts to the central bank's key short-term policy rate, its market operations rates and benchmark bank lending rates came after China reported weaker-than-expected second-quarter economic data last week and its top leaders met for a plenum that occurs roughly every five years.

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But it's precisely these small decisions that determine our path. The Ripple Effect is a powerful concept that can transform our lives for the better or worse.

A Fed rate cut can also have a significant impact on the financial markets: Stock Market Rally: Investors often view rate cuts as a positive sign for the economy. This can lead to a rally in the stock market as investors become more optimistic about future economic prospects.

China relies on the U.S. for roughly $580 billion of exports per year, total foreign direct investments of $124 billion, joint ventures in high-growth industries, and more. The U.S. relies on China for economic growth in investments, people flow, idea flows, and trade in key industries.

Interest Rate in China averaged 4.29 percent from 2013 until 2024, reaching an all time high of 5.77 percent in April of 2014 and a record low of 3.35 percent in July of 2024.

After a stronger-than-expected start to the year, China's economy is showing signs of weakening as the world's second-largest economy struggles with a real estate downturn, slowing consumer spending, and geopolitical tensions.

A change in the federal funds rate changes other interest rates, the exchange rate, the quantity of money and loans, aggregate demand, and eventually real GDP and the inflation rate.

The Fed raises interest rates to slow the amount of money circulating through the economy and drive down aggregate demand. With higher interest rates, there will be lower demand for goods and services, and the prices for those goods and services should fall.

What is the ripple effect of interest rates? ›

As rates rise, the cost of capital for buyers increases, which can slow down the exit market and compress valuation multiples​​​​. Fundraising and Dry Powder: Lower interest rates often lead to increased allocations to PE as institutional investors seek higher returns in a low-yield environment.

Higher interest rates can make borrowing money more expensive for consumers and businesses, while also potentially making it harder to get approved for loans. On the positive side, higher interest rates can benefit savers as banks increase yields to attract more deposits.